On December 26, 2007 the EEOC published a rule that permits employers to reduce benefits for retirees once they become eligible for Medicare. The issue regarding benefits for retirees has been debated legally for many years. Historically, employers relied on the Older Workers Benefit Protection Act of 1990, Public Law No. 101-433, 104 Stat. 978 (1990) (OWBPA). The OWBPA permitted eliminating, reducing or altering employer-sponsored retiree health benefits with Medicare eligibility as lawful under the ADEA.
This long standing practice was turned on its ear in a 2000 decision in Erie County Retirees Association v. County of Erie, 220 F. 3d 193 (3rd Cir. 2000). This was the first federal court case to examine the relationship between the Age Discrimination in Employment Act (ADEA) and employer-provided retiree health benefits. The federal court ruled that an employer violated ADEA if it reduced or eliminated retiree health benefits when the retiree became eligible for Medicare, unless it could show that the benefits received by Medicare-eligible retirees are the same, or cost the same, as health insurance benefits received by younger retirees. In light of Erie, employer-sponsored health benefit programs for retirees were being eroded or eliminated in their entirety. In order for an employer to chose to provide retiree health benefits, the employer had to prove "1) that the benefits available to Medicare-eligible retirees were the same as the benefits provided to retirees not yet eligible for Medicare or 2) that they were expending the same costs for both groups of retirees". These requirements caused numerous headaches to employers because this information had to be provided via "complex comparisons of multiple objective and subjective variables, including types of plans, levels and types of coverage, deductibles, geographical areas covered, and level of provider choice offered by each plan." Employers found, however, that this entire nightmare could be avoided by simply eradicating the plans, since they were not required by law to provide retiree health benefits. Employers also found it easier to merely reduce the coverage provided to retirees with fewer benefits.
These actions by employers against retirees, made it hard for the negotiation of future employer-sponsored retiree health benefits. For example, public school employees, were adversely impacted because they often retire early and rely on the employer-sponsored retiree health benefits until they are eligible for Medicare. Due to the ramifications of Erie, the EEOC enacted the rule in December 2007.
The rule was created to enable not only employers but labor organization an opportunity to offer a wide range of health plans designed to incorporate Medicare or comparable health benefit programs without being in violation of the ADEA. Of significant note, this rule only pertains to the ADEA and does not apply to non-ADEA obligations that employers may have to provide health benefits in compliance of Medicare or other state laws. Individuals who are eligible and/or do indeed receive Medicare or comparable state health benefits, but who have not yet retired, are not affected by this new rule.
According to the EEOC's web page, this rule allows employers that provide retiree health benefits to continue to coordinate those benefits with Medicare or comparable state health benefits without violating the ADEA. Although the EEOC is excited about this new rule and believes that it will be beneficial to the retirees, advocates for the American Association of Retired Persons are not so enthused about this change. The Director of AARP stated, "It is a wrong-headed move to legalize discrimination, allowing employers to back off their health care commitments based on nothing more than age."
Although this latest rule seems to be problematic for some groups, the EEOC stands behind the new rule and sees it as a positive and necessary improvement. EEOC legal counsel Reed Russell stated, "Our rule makes clear that it is lawful for employers to continue to provide retirees with health benefits they currently receive. Contrary to what some interest groups have erroneously asserted, the rule will not require any cuts to retiree benefits."
This rule may have put to rest the long legal debate surrounding benefits for retirees, nevertheless, it has sparked a new debate that will surely be discussed for some time.